The tech upstarts set to occupy Wall Street

Lender OnDeck's agreement with JPMorgan shows city's startups can play in the big leagues

JPMorgan announced a partnership with the small-business lending startup last week

New York's financial technology startups may finally have a chance to join the Wall Street big-money league, with JPMorgan Chase's announcement last week that it will partner with a tiny nine-year-old Manhattan-based firm, OnDeck Capital.

The arrangement gives JPMorgan (assets: $2.4 trillion) a chance to serve OnDeck's customers—typically small-business owners who can't get bank loans. OnDeck (assets: $708 million) uses different criteria from banks to gauge the creditworthiness of borrowers. (Its CEO, Noah Breslow, was a Crain's 40 Under 40 this year, and the company ranks 87th on Crain's 2015 Best Places to Work list.)

“It's a great example of the power the city's fintech sector can have,” said Maria Gotsch, chief executive of the Partnership for New York City's investment arm. “Fintech” is the preferred term for startups that use innovative software to provide financial services.

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The city's financial startups got a big boost five years ago when the Partnership for New York helped launch an “innovation lab” that offers entrepreneurs developing promising technologies the opportunity to work directly with financial -institutions.

Lab alumni include Gary Zimmerman, who last year debuted a company called MaxMyInterest, which helps savers boost the amount of interest they earn from their accounts by automatically depositing their cash in online banks that offer the highest insured yields.

Zimmerman, a former Citigroup investment banker, said his startup has grabbed the attention of several of New York's largest banks and asset-management firms, though he wouldn't name names. “Our technology interests a lot of them, and we're having productive conversations,” he said.

Another alum, Prem Melville, is a former IBM data scientist who founded Social Alpha, a firm that sifts through Twitter and other social media to find information of interest to investors. He claims many of the city's largest banks and hedge funds as clients, and hopes to turn his focus to new forms of data, including email. “We see social media as just the tip of the iceberg,” Melville said.

Fintech investment is reaching frenzied levels. Last year, investors pumped $768 million into New York-based financial startups, up 32% over the prior year.

A few Partnership lab alumni have been snapped up by larger rivals in recent months. In September, BillGuard, a personal financial planning and security site, was acquired by Prosper Marketplace, a publicly traded online lender, for $30 million in cash. In August, Standard Treasury, whose software helps small businesses bank online, was acquired by Silicon Valley Bank for an undisclosed amount. No lab alumni have tried to go public, which may be wise considering OnDeck's share price has fallen more than 40% since its IPO late last year.

Gotsch said Tennessee-based defense company Digital Reasoning opened a 20-person New York office to woo banks to its technology that can read transcripts or text messages. Pymetrics, a career-search firm, received an undisclosed investment last week from Marsh & McLennan-owned Mercer Consult-ing. And Kasisto, which develops speech-recognition technology for banks, was created by some of the same people who built the iPhone's virtual servant, Siri.

“Those people are from Stanford,” Gotsch crowed. “They chose to come from Silicon Valley to New York.”